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2026-09-09
Taxes when you sell real estate ― calculating capital gains, and the "5% rule" for land whose purchase price is unknown
When you sell land or a house, tax is charged not on the sale price but on the "profit". The capital gains (譲渡所得) formula, the tax rate that changes at five years of ownership, the deemed acquisition cost (5%) for inherited land whose purchase price is unknown, the 30,000,000 yen deduction for your own home, and the addition of inheritance tax to acquisition cost. This article sets out the numbers you should know before selling, from the practical viewpoint of a licensed real estate agent.
About this translation ― This page is an English translation of an article originally written in Japanese by KuraLab's operator, a licensed real-estate transaction specialist (宅地建物取引士) and administrative scrivener (行政書士) in Japan. The Japanese original is the authoritative text; where the two differ, the Japanese version prevails. The article explains Japanese law and procedure in general terms as of the date shown. It is not legal, tax or immigration advice for your situation ― please confirm with a licensed professional in Japan. Japanese terms are kept in parentheses so you can search for them. Read the Japanese original
Three months after the sale proceeds of 30,000,000 yen were paid in, the man bought a new car, had the kitchen redone, and put the rest towards his children's school fees. The following February he came for advice on his tax return, and the figure I gave him was "about 5,800,000 yen." "That much?" It was land his grandfather had bought after the war, and the purchase price was unknown. The acquisition cost was 5%, 1,500,000 yen, and the capital gain about 28,500,000 yen. Long-term, so about 20%. The sale proceeds he still had at that point were about 4,000,000 yen. This article is about knowing that 5,800,000 yen before you sell, not the following February.
"If I sell land for 30,000,000 yen, how much tax is there?" Nobody answers this with "on the 30,000,000 yen." Tax is charged not on the sale price but on the profit: the sale price less "the purchase price" and "the costs of selling," that is, the capital gain (譲渡所得). Here I set out that calculation and the problems that often arise with inherited land.
The formula is "capital gain = transfer price − (acquisition cost + transfer expenses)." The transfer price is the sale price. The acquisition cost is the total of the purchase price, the brokerage fee at purchase, registration costs, real estate acquisition tax and so on (for a building, depreciation according to the years elapsed is deducted). Transfer expenses are the brokerage fee on the sale, stamp duty, survey costs, demolition costs and so on. If land sold for 30,000,000 yen was bought for 20,000,000 yen and the costs of the two transactions total 2,000,000 yen, the capital gain is 8,000,000 yen.
The tax rate depends on the holding period. If the holding period exceeds five years as at 1 January of the year of sale, it is a "long-term capital gain": income tax 15 per cent and resident tax 5 per cent (20.315 per cent in total including the special reconstruction income tax). Five years or less is a "short-term capital gain": income tax 30 per cent and resident tax 9 per cent (39.63 per cent in total). Almost double. For inherited land, the holding period is counted from the date the deceased bought it, so land a parent bought thirty years ago is long-term even if sold immediately after the inheritance.
With inherited land, the problem every time is "the purchase price is unknown." A grandfather bought it after the war, a parent built on it decades ago, and no contract or receipt survives. In this case the acquisition cost can be calculated as "5 per cent of the transfer price" (deemed acquisition cost). Sell for 30,000,000 yen and the acquisition cost is 1,500,000 yen. The capital gain approaches 28,500,000 yen, and for a long-term gain the tax is about 5,800,000 yen. Almost the whole sale price is treated as profit: that is the harshness of this rule. If you can prove that the actual acquisition cost was more than 5 per cent, with bank passbooks of the time, home loan records, the developer's price list and the like, you can use that instead. It is well worth searching for old documents before you sell.
As a picture of land with unknown acquisition cost sold for 30,000,000 yen (deemed acquisition cost 5%, long-term): the transfer price is 30,000,000 yen of sale proceeds. Acquisition cost 1,500,000 yen and capital gain 28,500,000 yen. Tax at 20.315% about 5,790,000 yen and net about 24,210,000 yen. Transfer expenses (brokerage fee and so on) are omitted; if the actual acquisition cost can be proved, the capital gain falls.
There are special rules. If you sell a house you lived in (your own home), you can deduct 30,000,000 yen from the capital gain. If you did not live in the inherited parent's house, this rule does not apply, but there is separately the "30,000,000 yen special deduction for the deceased's residential property" described in another article on this site about vacant houses. Also, if a person who paid inheritance tax sells the inherited land within three years and ten months of the start of the inheritance, there is a "special rule for addition of acquisition cost" under which part of the inheritance tax paid can be added to the acquisition cost.
The commonly used special rules (as of September 2026): the 30,000,000 yen special deduction for residential property, deducting 30,000,000 yen from the capital gain, for a house you lived in, until the end of the third year after you stopped living there. The special deduction for the deceased's residential property (vacant house), deducting up to 30,000,000 yen, for a building from before May 1981, until the end of the third year after the inheritance, with earthquake retrofitting or demolition. The addition of inheritance tax to acquisition cost, adding part of the inheritance tax paid, for a transfer within three years and ten months of the start of the inheritance. The reduced rate for ownership over ten years, taxing the portion up to 60,000,000 yen at 14.21%, for a house you lived in and owned for more than ten years.
The tax is paid in the tax return of the year after the sale. Capital gains are taxed separately from salary and other income, and the amount found by applying the above rates to the gain is added on top of the income tax on salary. You file between 16 February and 15 March of the year after the sale, and the resident tax notice comes from June of the following year. Thinking in net terms, the "money you can use" is the sale proceeds less the brokerage fee and the following year's tax.
On the spot, we did two things. One, a search for evidence of acquisition cost. The grandfather bought in 1952, and there was no contract from that time. Among the father's effects there were the home loan records from when the father built a house on this land in 1985, and old fixed asset tax notices for the land. These do not prove the acquisition cost of the land. Nothing showing what the grandfather paid was ever found. The acquisition cost stayed at 5%, 1,500,000 yen. Two, checking the special rules. The man had not lived in this house, so the 30,000,000 yen own-home deduction was unavailable. The father had lived there alone, and the house was built in 1985, so it failed the "built on or before 31 May 1981" requirement of the vacant house 30,000,000 yen deduction. No inheritance tax had been paid, as the estate was within the basic deduction, so there was no addition to acquisition cost either. None of the three special rules applied.
The tax calculation. Transfer price 30,000,000 yen, acquisition cost 1,500,000 yen, transfer expenses about 1,360,000 yen (brokerage fee about 1,050,000 yen, stamp duty 10,000 yen, survey 300,000 yen). Capital gain 30,000,000 − 1,500,000 − 1,360,000 = 27,140,000 yen. Long-term, income tax 15.315% and resident tax 5%, together about 5,510,000 yen. A little below the rough "5,800,000 yen" the man had heard, but the 4,000,000 yen he had left was not enough. The shortfall of about 1,500,000 yen he borrowed from relatives, separately from the car loan, and paid. Income tax by 15 March; resident tax notified from June and paid in four instalments.
One more thing. Suppose this land had been bought not by the grandfather but by the father in 1985, and the contract survived. If the acquisition cost had been 12,000,000 yen, the capital gain would be 30,000,000 − 12,000,000 − 1,360,000 = 16,640,000 yen, and the tax about 3,380,000 yen. The difference from the 5% rule is about 2,130,000 yen. The "value of searching for old documents before you sell" that I mentioned above was, in this house, 2,130,000 yen that did not turn up however hard we looked.
In practice, the first three things I tell a seller are these. Search for evidence of the purchase price. Check the five-year wall for the holding period (for an inheritance, the parent's acquisition date). And build into your financial plan that the tax comes the year after the sale. The scenario of spending all the proceeds and then panicking at tax return time can be prevented by these three. Confirm the individual calculation with a tax accountant or the tax office.
A year after the 30,000,000 yen was paid in, the man was left with a car, a kitchen, and a 1,500,000 yen debt to relatives. I wrote above, "build into your financial plan that the tax comes the year after the sale." In this house, nobody said that one line before the sale. The "money you can use" from land that sold for 30,000,000 yen was about 23,000,000 yen. Of the three things I tell sellers first, the third was the line that would have mattered most in this house.
Written by: 長澤 湊（licensed real-estate transaction specialist, administrative scrivener, assistant surveyor） Content checked on: 2026-10-14
This article is a general explanation of Japanese rules and procedures, not advice on an individual case. Figures and rules are as of the date shown. For your own situation, consult a lawyer, judicial scrivener, tax accountant or administrative scrivener in Japan.